NY's new pension plan cuts costs, helps unions

AP News
Posted: Dec 03, 2009 6:01 PM

New York's new public worker pension plan is being described as both landmark reform that will save taxpayers billions of dollars and the latest gift to powerful state employee unions.

The elements sought by unions in the legislation adopted Wednesday included a new benefit for the powerful teachers unions, restricting the state's hiring of private-sector contractors to do tasks that public workers could do, and guarantees of no layoffs next year. It also prevents schools and governments from offering a 401k retirement plan, with employer and employee contributions.

But the plan also creates a new, less-generous pension tier for new hires, requires workers to contribute more to their retirement plan, limits bloating benefits with late-year overtime pay, and other measures that should rein in costs for taxpayers. Estimates of savings range from $30 billion to $50 billion in avoided costs over the next 30 years.

"This is huge," said Lawrence Schwartz, Gov. David Paterson's point man in the seven months of negotiations. "Governments and taxpayers are going to be jumping for joy."

Unions had to sign off on the plan before the Legislature would approve it.

Some fiscal conservatives are looking disdainfully on the changes.

"As so-called reforms go, this one has turned out to be a real travesty," said E.J. McMahon, director of the Empire Center for New York State Policy, part of the fiscally conservative Manhattan Institute. "This was a vintage Albany deal, with all the most important details hidden and unexplained until the vote was over."

Republican John Faso, who spent decades in the Assembly criticizing state spending, said there is good and bad in the bill. The best part is that it happened at all. A less-expensive pension tier has been needed for years. He said the worst parts include missing the opportunity to offer a 401k option, like most taxpayers have, and giving away some bargaining chips like the chance to change or combine health plans.

"In normal times, this is what you might anticipate in Albany," he said of the "bouquets" thrown to unions to gain their support. "But these are not normal times. The state is going broke, the taxpayers can't afford to pay any more. And so much of this smacks of business as usual."

Good-government advocates have long criticized the power of public employee unions in Albany. The unions spend millions to lobby lawmakers and statewide officials and millions more in campaign contributions and resources, including phone banks to contact voters and endorsements on behalf of their thousands of members.

In the end, the major public unions applauded the legislation they were part of crafting.

"People have called for reform for years. We will save a huge amount of money in the labor area," Paterson told WCBS radio in New York City on Thursday.

"We have long know about problems in our state pension system and today we have acted to do something about it," said Senate President Malcolm Smith, a Queens Democrat, shortly after the bill passed.

The guarantee of no layoffs eliminates that bargaining chip as the state continues to try to dig out of a historic fiscal crisis, which includes a hiring freeze. It was part of a deal Paterson previously struck with unions to provide retirement incentives of $20,000 per employee to reduce the work force without layoffs, although fewer employees participated than had been sought by the governor.

The new benefit for public schools in the teachers' pension system provides for an earlier retirement option for teachers hired after Jan. 1. They will be able to retire with full benefits at 57 years old if they work at least 30 years.

Teachers are given the benefit even as the full-benefit retirement age for other public employees rises to 62 years old, from 55 years old, with 30 years' employment.

"We need the early retirement," said Alan Lubin of the New York State United Teachers union. "Teachers just don't make it to 62. It's a tough job."

Under the plan adopted Wednesday, teachers hired after Jan. 1 will be eligible for the early retirement. But they will pay 3.5 percent of their salary toward their pension for as long as they work. Currently, employed teachers pay 3 percent for the first 10 years of service, then pay nothing.

There is no typical or average salary and retirement estimate, he said. Those are diverse and set in local school district contracts, with salaries for most teachers ranging from $50,000 to $100,000.

The Public Employment Federation union praised the measure that restricts the use of private-sector contractors and gives those jobs to public employees.

"For years, PEF has urged the state to reduce costs by cutting the use of (information technology) consultants where the same work can be done by state employees at a savings," said Kenneth Brynien, union president.

Opponents of the practice defend outside consultants as less expensive and more efficient.